Is Middleby Starting to Cool Off?

Source: Middleby.

The restaurant industry has been quite active lately, and that has turned the spotlight on not only restaurant stocks but also the supporting companies that serve them. Middleby (MIDD 1.62%) has had great success providing commercial ovens and other products for restaurant operators, and its moves into the residential market and to offer refrigeration equipment promise further growth. Yet as Middleby prepares to release its first-quarter financial report on Wednesday afternoon, investors have cooled a bit on the stock, and some worry the long streak of growth could be coming to an end. Let's take an early look at Middleby's recent doings and what it's likely to reveal this week.

Stats on Middleby

Source: Yahoo! Finance.

Can Middleby earnings keep rising?
Investors have marked down their views on Middleby earnings in recent months, cutting almost 10% from their first-quarter estimates and reducing full-year projections for 2015 by a dime per share. The stock has given back some ground, falling about 5% since mid-February.

Middleby's fourth-quarter report wasn't the unequivocal success most investors had hoped for from the oven maker. Sales rose an impressive 15%, but earnings growth lagged at just 4%, and the company fell well short of investors' consensus earnings target. Gross margin suffered as new product introductions and warranty obligations on the residential business ate into profits, and higher tax rates also cost the company some growth.

Source: Middleby.

Still, Middleby is pulling out all the stops to find new growth opportunities. Advances in technology are helping Middleby bring commercial-quality equipment into homes, with features such as zero-preheat ovens. In the commercial space, fast-cooking techniques could revolutionize the pizza industry, and equipment designed for safety and efficiency is gaining acceptance in the fast-food and fast-casual space. With its new emphasis on refrigeration equipment, Middleby expects to offer combinations of ovens and blast-chillers that should give most clients the complete package they want.

CEO Selim Bassoul remains optimistic about the future. At a recent conference at The Motley Fool, Bassoul talked about the important contribution Middleby's corporate culture has had on the company. In particular, Bassoul's policy of keeping no more than three degrees of separation between himself and all of his employees has kept him in touch with the needs of his workers and their ideas for making Middleby a stronger company.

Moreover, Middleby has worked hard to build up a strong competitive advantage over its peers. By focusing not just on marketing its products but on true innovation that can lead to brand-new product offerings that cater to its customers' needs, Middleby has developed a reputation for being customer-centered and responsive to feedback. At the same time, following existing trends gives Middleby the vision it needs to identify what customers want, and in many instances it can then anticipate the next big thing in the industry and work at becoming the first company to offer products that address those needs. Combine that with a dedicated workforce, and Middleby is a tough nut for its competitors to crack.

In the earnings report, the company will likely focus not on any short-term impact on sales but rather on its big-picture strategy going forward. With so much potential to capture the new residential market and to put its stamp on the restaurant industry, Middleby has a good shot at defying skeptics and accelerating its growth in years to come.